One of the ways to look at whether an emerging technology or any other trend is threatening the status quo, is to look at how the market reacts to those most heavily vested in the current order of things. We do it every day, when we talk about the prices of PMs, in the context of how current fiat-paradigm entities like the USDX or T-bills or JPY, GBP and EUR are doing (not to mention the CNY). We look at the miners (in vain), we look at the major international banking conglomerates (with cold derision, in most cases).
Will BitCoin revolutionize the monetary system? Is it likely to supplant the USD as the global transactional currency of choice on any visible timeline? Is it (or can it be) a viable alternative to cash or credit card transactions? Let’s peer into the long-term forecasting ability of our free and fair equity markets and try to find out.
The top cash transport and security companies according to Wikipedia: Brinks, G4S, Loomis, Prosegur together make up 54% of the market.
The top international card payment processing networks: Visa, MasterCard, Discover and AmEx. There are a number of card issuing and related companies, but for brevity’s sake let’s focus on these. Visa takes 63% market share, MasterCard is there for 31%, while the remaining 6% is split between AmEx and Discover:
And of course, our very own TBTF, TBTJ, or just TFB banks, who together wield roughly $4.5T of the total $7.2T in US deposits, using their magic to multiply the money supply and provide monetary lifeblood and financial innovation to the economy: JPM ($1.33T), Bank o’ Amerika ($1.18T), WellsFarceCo ($1.05T) and ShittyBank ($0.97T). Could their dominance in aiding payment transfers, productive small businesses and benevolent corporate giants, industrious savers and EBT recipients be threatened by this alternate paradigm of cryptocurrency?
None of these industries seems mortally wounded, or even particularly winded. The ever-flowing monetary juice provided by the ongoing Q-Injections and the ongoing MBS-aided balance sheet cleanup seems to be doing its job of creating enough back-wind to fill the sails of these companies.
Now, you may say (and would to a large degree be right) that the shares of these corporations (mini-states) are held largely by dumb, managed money funds. They wouldn’t be able to react to a paradigm shift if it walked up and kicked them in the face.
This is certainly not evidence, and is of course but a cursory glance. But to this observer, the global financial impact expected from BitCoin by the all-seeing, ever-wise eyes of the equity market seems to be:
- Priced in. The existing structure will absorb/adapt to using BitCoin, and remain on its marvelous current growth trajectory, or
- The monetary relevance of BitCoin in the global economy is expected to continue for immediate/foreseeable future at its current level: close to negligible.
USD in circulation: $1.2T (FRNs and coins), as per St. Louis FedRes:
“Currency in circulation includes paper currency and coin held both by the public and in the vaults of depository institutions. The total includes Treasury estimates of coins outstanding and Treasury paper currency outstanding.”
Total current BTC market cap: $0.0119T (variety of BTC charts here).
Paradigms DO sometimes shift suddenly, with a jolt, due to a major shock to the system. The fact that one (or multiple) major shocks are to be expected to the ‘system’ in the medium to longer term (and some even in the short term) is pretty much accepted around here – the questions are only about the exact nature and outcome of said events. When and if any such ‘shift’ to cryptocurrency (BTC or anything else) should be underway, these may very well be lagging indicators. But for the moment, seeing as JPM lost more in the London Whale incident (and makes twice as much profit in a year) than the entire existing supply of BTC, it may be prudent to tamp down expectations of WHEN in the next 3-6 months BTC might be in a position to take the world by storm.
Your next wallet
What is an object that is ubiquitous in today’s world, with billions owned and in use every day? Always, or at least often, connected to the internet? Possesses the ability to store and transmit digital currency (among other things)? Is increasingly able to provide personalized biometric identification as a standard feature?
Phone-based payment systems, particularly those using near-field communication, have not really caught on. Money transfer via SMS-based networks IS, actually, a significant factor is many developing countries, but is not intended or used as a ‘cash-like’ payment for local transactions.
If a company were to provide a streamlined, ‘totally secure’, biometrically verified method of easily transacting a digital currency through a phone (scan QR code that encodes target account + transaction amount), that might be one to watch.
Wouldn’t it be great if MORE people’s identity, physical location, traveling habits, web browsing, caloric intake and exercise regimen, movie preferences and personal messages, purchases, photos, fingerprints, circadian rhythms, physical gait, social network and banking passwords, AND all of their monetary transactions could just concentrated into a neat, accessible little package, somehow… It would be SO convenient...
For what it’s worth, I attempted to ‘catch the falling knife’/’BTFD this week, by adding a small roll of shiny, metallic discs to the pile of similar tubes lying in the deep, cold waters of my favorite fishing hole. The LCS proprietor smiled sweetly as she advised me that $14 would probably be a more reasonable bottom to expect. In that case, I am sure to be back, was my reply.
I still think I should get a BTC wallet this weekend, try to guess the total lifetime amount I have spent on lottery tickets, and buy that much BTC on the next larger dip…
For anyone interested in a relatively painless way of learning about all this, there is a Khan Academy course on BitCoin that goes over most of its salient components in reasonably short, ca. 10-minute segments.
Hosted by cryptologist Zulfikar Ramzan, below are the introductory episodes (I realize the previews are not showing for some reason, but you're not missing anything and the links work -- just click):